EconPol Policy Reports

Cover of EconPol Policy Report 37

Moving From Broad to Targeted Pandemic Fiscal Support

Heinemann, Friedrich

This paper conceptualizes an appropriate path for fiscal policy starting from the early phase of the pandemic up to the final transition to a post-pandemic new normal. Using this yardstick, it assesses the initial fiscal response of Member States. It exploits fiscal projections and program data to analyze the adjustment to the economic recovery. For loan guarantee and short-time work schemes, it identifies program-specific parameters that improve target precision and identifies examples of more and less convincing program designs.

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Cover of EconPol Policy Report 36

What if? The Economic Effects for Germany of a Stop of Energy Imports from Russia

Bachmann, Rüdiger / Baqaee, David / Bayer, Christian / Kuhn, Moritz / Löschel, Andreas / Moll, Benjamin / Peichl, Andreas / Pittel, Karen / Schularick, Moritz

This article discusses the economic effects of a potential cut-off of the German economy from Russian energy imports. We show that the effects are likely to be substantial but manageable. In the short run, a stop of Russian energy imports would lead to a GDP decline in range between 0.5% and 3% (cf. the GDP decline in 2020 during the pandemic was 4.5%).

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Cover of EconPol Policy Report 35

Planned Fiscal Consolidation and Under-Estimated Multipliers: Revisiting the Evidence and Relevance for the Euro Area

Daniel Gros, Alessandro Liscai and Farzaneh Shamsfakhr

The Great Financial Crisis caused a deep recession and led to very large public deficits. When financial market tensions erupted, many European countries were forced to reduce their deficits. This ‘austerity’ is often credited with the disappointingly slow recovery during the years after the financial crisis. One reason for such a slow recovery could have been that the impact of a reduction in the fiscal deficits is larger than anticipated during a recession, especially if it is accompanied by financial market tensions. At the height of the financial crisis and in its immediate aftermath, this might not have been properly taken into account.

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Cover of EconPol Policy Report 34

Investment Screening Mechanisms: The Trend to Control Inward Foreign Investment

Vera Z. Eichenauer (ETH Zurich), Michael Dorsch (Central European University), Feicheng Wang (University of Göttingen)

In an increasing number of sectors, concerns are rising that foreign firm participation may pose risks to public order. Many developed countries have adopted or extended their investment screening mechanisms to control inward foreign direct investment in strategically important sectors over the last years. This paper documents the development of investment screening in OECD and EU countries and provides the first discussion from an economic perspective. We review existing and propose new explanations for the adoption of investment screening. Our exploratory quantitative analysis suggests that countries with higher levels of technological development and with a stricter regulatory environment for foreign investment are more likely to introduce investment screening. Contrary to the popular wisdom, we do not find evidence that higher Chinese inward investments are associated with the implementation of investment screening.

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Cover of EconPol Policy Report 33

A Model To Think About Crypto-Assets and Central Bank Digital Currency

Hernán D. Seoane (Universidad Carlos III de Madrid)

This paper introduces digital assets, crypto assets in general, and Central Bank Digital Currency in particular, into an otherwise standard New-Keynesian closed economy model with Financial Frictions. We use this setting to study the impact of a change in preferences towards the use of digital assets and to address whether the emergence of this type of instruments affect the transmission of monetary policy shocks. In this context we study the introduction of Central Bank Digital Currencies. The model is stylized but it could be a baseline for the design of models for quantitative analysis.

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